Health Care Stocks Fall After Clinton Speech : Investment: Confusion about the President’s reforms has led to a massive selloff affecting even companies that saw profit increases.
Three weeks ago, Terry Hartshorn, chief executive of PacifiCare Health Systems Inc., was singing his company’s praises.
Now, he’s singing the blues. The health maintenance organization’s stock has fallen like a lead balloon, despite a quarterly report showing a 62% increase in profit.
And Abbey Healthcare, one of the nation’s largest home health care agencies, on Tuesday reported its best earnings yet, but its stock has been taking a drubbing, losing 25% of its value this month. The shares recovered somewhat after the annual results were posted, but the trend has been down, despite indications that the Costa Mesa-based company was earning money at record levels.
Are stockholders deaf?
On the contrary, they are listening carefully--too carefully, some would say--to the words of President Clinton when he speaks of health care reform. Since Clinton’s Feb. 17 address to Congress, health care companies’ stocks in Orange County and elsewhere have taken a nose-dive, even when their operations are doing well.
“The Administration’s strategy can best be summed up, in my opinion, to: ‘Aim, ready, fire,’ ” said John Hindelong, an analyst with investment brokerage Donaldson, Lufkin & Jenrette in New York. “They want to do something--anything--and then worry about the impact later.”
The most immediate effect, company officials and stock analysts say, is that holders of health care stocks have become skittish and confused about just what Clinton and the White House Task Force of National Health Care Reform have in mind. That confusion has precipitated a massive selloff that has hit all health care sectors: drug distributors, health maintenance organizations, home health care agencies, pharmaceutical companies and hospital networks.
“Nothing in health care has been spared,” Hindelong said. “It is really a mess.”
The drop in confidence on Wall Street defies logic, analysts and company officials say. For instance, PacifiCare, which has seen its profit grow consistently in the past year, watched helplessly as its stock value on the NASDAQ market headed south, from $46.38 a share on Feb. 1 to $20.63 a share on Monday. It inched back up on Tuesday to close at $22.50.
That retreat came despite CEO Hartshorn’s prediction that the company will likely be a major beneficiary of any health care proposals that the Clinton task force releases.
“There is certainly no fundamental reason for this devaluation of our stock,” Hartshorn said.
David Saks, a health care stock analyst with Gruntal & Co. in New York, agreed that the selloff is needlessly including so-called “cost-containment stocks” such as generic drug manufacturers and HMOs, which were thought to be investment havens from health care reform measures.
“They’ve all just sunk like the Titanic,” Saks said.
The price declines have been exacerbated by the selling of health care stocks by money managers trying to cut their quarterly portfolio losses, Saks noted.
Abbey Healthcare, for instance, was widely seen in the investment community to be heading for record earnings because its service--offering nursing care in the home--is regarded as a cost cutter.
On Tuesday, it became clear that Abbey Healthcare’s annual profit even exceeded analysts’ expectations. The company posted 1992 earnings of $10.4 million, or $1.28 a share, on revenue of $248.7 million. That contrasted with a loss of $6.9 million for 1991 on revenue of $227.2 million. Abbey Healthcare’s chief executive, Timothy M. Aitken, noted that analysts had projected earnings of $1.20 a share on sales of $140 million.
Nevertheless, the company’s stock had fallen from $24.25 a share on Feb. 1 in NASDAQ trading to $17.13 a share on Monday. The positive earnings news Tuesday nudged the price up to a close of $18.50.
“I find that the market is being rather infantile in the way that it is reacting across the board,” Aitken said.
Other notable victims include:
- Orange-based Bergen Brunswig Corp., which was hoping to see its stock soar this year because of several key acquisitions. Instead, the $6-billion-a-year drug wholesaler has watched its stock price fall 17% on the American Stock Exchange, from $23.25 a share on Feb. 1 to $19.25 a share on Tuesday.
- Allergan Corp. of Irvine, the $897-million-a-year maker of eye- and skin-care products. Despite earning $103 million for 1992, the company has seen its stock decline by 8% since Clinton’s speech. In Tuesday’s trading on the New York Stock Exchange, the shares closed at $22.13 apiece, unchanged.
- FHP Inc., the Fountain Valley-based HMO that has seen its profit soar 49% in the past year because of strong membership gains. Its stock, however, has lost 20% of its value this month in trading on the NASDAQ market. Tuesday’s closing price was $19.50, off 75 cents a share for the sixth consecutive day of declines.
- Highly profitable Pyxis Corp. of San Diego, a company that posted a 1992 profit of $11.9 million on revenue of $46 million. Pyxis’ shares lost 5.63 in Monday’s trading on the NASDAQ market and another $2.63 Tuesday to close at $38.88, a 17% loss since Friday.
Analysts and corporate officials agree that, in the short run, health care stocks’ devaluation will not hurt the companies’ day-to-day operations. The greatest effect, executives say, is the distraction of handling hundreds of phone calls a day from worried investors. But there are long-term implications, especially for growth-oriented companies and small start-up firms that rely on stock sales to underwrite costly clinical trials or acquisitions.
Tim Wollaeger, a director of Pyxis and a San Diego-based venture capitalist who has helped found five health care companies, said the long-term effect of the stocks’ decline may be that it forces young companies to look overseas for warmer investment climates.
“If the Clinton Administration says it’s improper to invest and make a profit, companies that make profits may just head for the hills,” Wollaeger said. “This business is not constrained by borders. They’ll go to other, friendlier environments.”
Company officials also say that it is too early to pick winners and losers in the health care field. Smart investors, they say, will hang on to stocks, especially in the managed-care area, rather than sell them at the first sign of trouble.
There are some companies, however, that will inevitably be hit harder than others under any proposal that comes out of Washington. Pharmaceutical companies and hospital networks, for instance, will probably be affected by rate setting and price caps.
But David Olson, a spokesman for National Medical Enterprises in Santa Monica, said that even worries in those areas are premature. The hospital industry, he said, will most likely resist any changes that would include such components.
“In a general way, NME and all hospitals are going to be resistant to rate setting,” said Olson, whose company operates 131 hospitals across the nation. “States like Florida have been doing it for years, and it doesn’t do what they think it’s going to do.”
Health Care Stocks Take a Beating
Since President Clinton unveiled his economic plan a week ago, shares of health care companies have dropped dramatically, despite the fact that most of those companies are seeing their revenue rise. A look at closing stock prices for four Orange County companies since Feb. 1:
Regency Health Services Inc., Newport Beach
Abbey Healthcare Group Inc., Costa Mesa
Homedco Group Inc., Fountain Valley
Pacificare Health Systems Services Inc., Cypress (Class B Stock)
Source: Dow Jones News Retrieval. Researched by SHEILA A. KERN and DALLAS M. JACKSON / Los Angeles Times
